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Risk Management

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Crisitna McEachern
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ABP Investments Brings Together Disparate Risk Models with Barra TotalRisk

ABP Investments looks to cover a broad range of assets under the Barra system.

ABP Investments, the investment management arm of the Dutch pension fund ABP, has selected Barra's TotalRisk for Asset Management (TRAM) for risk management across the firm. In addition to the fact that ABP was previously using Barra models to manage risk and was familiar with the vendor, ABP chose the Barra product for its broad asset class coverage and its integration of market and credit risk for U.S. fixed income products, says Thijs Coenen, head of risk management at ABP Investments.

"One of the most important things we were looking for was a system that could cover a broad range of assets," says Coenen. He adds that ABP is the third largest pension fund in the world, with asset coverage ranging from "standard public bonds and equities to investments like private equity, structured finance and derivatives." Previously, ABP Investments was using "nine or ten individual risk management systems" for various asset classes, says Coenen. These individual systems were mainly Barra-provided models, run and processed separately according to asset class. "Now we're centralizing all of these individual models into one system," notes Coenen.

ABP Investments also chose the Barra Tram solution because it successfully addressed the firm's overall risk budgeting strategy. "We try to re-formulate a risk budget in terms of total risk and active risk, relative to a certain benchmark, and we try to allocate the total risk budget to the various allocation decisions," explains Coenen. "Barra TRAM is able to support that risk budgeting process in the way we structured our investment process."

The integration of market and credit risk in certain areas was also key to ABP Investment's decision, says Coenen. "Each investment manager is struggling with the topic of the integration of market and credit risk, and Barra has done a terrific job of integrating the two for U.S. fixed income," notes Coenen. He adds that ABP Investments has requested a new European fixed-income model to integrate market and credit risk for Barra's new release of the TRAM product. ABP Investments manages about $140 billion, with more than one-third of those assets invested outside of Europe.

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